Caveat: Know Your Arbitrator

Law: Two tales illustrate the risks in an increasingly common feature of contracts.

SCAA President Loren Huweiler, a Palm Desert real estate salesman, declined to be interviewed, saying only that the "SCAA and the arbitrators and myself have done nothing improper in any cases."

Court records show that Huweiler has had extensive business dealings with Holgate--a onetime CHP officer whose resume, filed as an exhibit in a court case, boasts of his role in real estate ventures worth "in excess of $100 million."

At least one, however, was a messy flop.

During the 1980s, Holgate, now 49, was sued scores of times over a failed development project in northern San Diego County. Investors who lost millions of dollars accused him and others of fraud, claiming they had pushed a highly speculative venture as a sure thing. Eventually, the cases were settled without admission of wrongdoing when insurance companies paid off part of the losses.

In 1989, at the height of the litigation, Holgate and his wife, Karen, filed for bankruptcy, listing nearly $21 million in claims by hundreds of creditors--most of them irate investors. The Holgates emerged from bankruptcy the following year.

By 1995, Holgate was promoting another development--this time for a blighted part of Indio where Soderstrom owned the two small vacant lots.

Soderstrom, who lives in San Pedro, wanted to keep the property, she said, but agreed to sell it for $75,000 after Holgate's agents pestered her several times.

The deal fell through last March, however, when Soderstrom said she received escrow instructions with terms that she had repeatedly rejected. Saying she was tired of being toyed with, she refused to deal with Holgate any more.

According to Soderstrom, the matter should have ended there--but didn't.

At first, she was mystified by the SCAA notice of Holgate's arbitration demand. Then she realized that, in passing papers back and forth, she had inadvertently signed one containing the arbitration clause.

*

As Judge Wright would later rule, Soderstrom never meant to agree to arbitration. Twice during negotiations, she had returned sales contracts with an "X" marked through unacceptable items--including the clause referring disputes to the SCAA. Once a verbal deal was struck, however, Soderstrom said she naively followed Holgate's agent's instructions and signed another paper with the SCAA clause.

Holgate obviously had given some thought to how to handle such quarrels. At one point, he planned to arbitrate them before an associate of his, Los Angeles lawyer and architect Cyril Chern, interviews and documents show.

Indio city officials and residents told The Times that Chern had accompanied Holgate to meetings and was introduced as a financial backer of the Indio project. Brad Barnett, a real estate agent hired to acquire land for the project, recalled Holgate going "on and on about this wonderful guy that was a partner of his, Cyril Chern."

So Barnett said he was shocked to read, deep in the fine print of Holgate's real estate contracts, a clause stating that disputes would be referred to Chern.

"Both parties expressly waive any conflict of interest which may or may not exist between themselves, the project and arbitrator Chern," stated the document, a copy of which was obtained by The Times.

Chern declined to be interviewed.

Several arbitration experts told The Times that such a waiver was extremely unusual and of doubtful legal validity. "It is absolutely appalling to me that anyone should be asked to waive a conflict of interest in advance," said Menkel-Meadow, the law professor.

Barnett said he protested to Holgate because sellers would not know that he and Chern were partners. "I said, 'Steve, you're going to get yourself in a lot of trouble,' " Barnett recalled.

Either because of these objections or for another reason, the SCAA was designated in Chern's place--though the conflict waiver language remained.

Holgate's links to the SCAA also were extensive.

Its president, Huweiler, had worked for Holgate in at least two businesses, court records show. Huweiler at one point owed Holgate $189,000, according to a financial statement prepared by Holgate and filed as an exhibit in court.

SCAA letterhead listed Huweiler and three others on its executive board. One of them, Shelly Muro, ran a fitness center where Karen Holgate was a member. Muro told The Times that she had filed the SCAA's incorporation papers as a favor but "shouldn't have been" listed on its board.

"I don't even know what they do," Muro said.

Also listed was Andrew Sfingi, a Coachella Valley businessman whose name appeared on the letterhead last January, although he had died four months earlier.

Huweiler said in a court declaration that he and Holgate had talked to Sfingi and got permission to use his name. But Sfingi's widow denied any connection between her husband and the SCAA. (An SCAA lawyer said he believes that the association has since dropped Sfingi's name from the letterhead.)